Hearing: Airline Fees

AIRLINE FEES
(111127)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
COMMITTEE ON
TRANSPORTATION AND
INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
July 14, 2010
Printed for the use of the

Committee on Transportation and Infrastructure
(
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WASHINGTON
57486 PDF
2010
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia, Vice
JOHN L. MICA, Florida
Chair
DON YOUNG, Alaska
PETER A. DEFAZIO, Oregon
THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois
HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of
JOHN J. DUNCAN, JR., Tennessee
VERNON J. EHLERS, Michigan
Columbia
FRANK A. LOBIONDO, New Jersey
JERROLD NADLER, New York
JERRY MORAN, Kansas
CORRINE BROWN, Florida
GARY G. MILLER, California
BOB FILNER, California
HENRY E. BROWN, JR., South Carolina
EDDIE BERNICE JOHNSON, Texas
TIMOTHY V. JOHNSON, Illinois
GENE TAYLOR, Mississippi
TODD RUSSELL PLATTS, Pennsylvania
ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri
LEONARD L. BOSWELL, Iowa
BILL SHUSTER, Pennsylvania
TIM HOLDEN, Pennsylvania
JOHN BOOZMAN, Arkansas
BRIAN BAIRD, Washington
SHELLEY MOORE CAPITO, West Virginia
RICK LARSEN, Washington
JIM GERLACH, Pennsylvania
MICHAEL E. CAPUANO, Massachusetts
MARIO DIAZ-BALART, Florida
TIMOTHY H. BISHOP, New York
CHARLES W. DENT, Pennsylvania
MICHAEL H. MICHAUD, Maine
CONNIE MACK, Florida
RUSS CARNAHAN, Missouri
LYNN A WESTMORELAND, Georgia
GRACE F. NAPOLITANO, California
JEAN SCHMIDT, Ohio
DANIEL LIPINSKI, Illinois
CANDICE S. MILLER, Michigan
MAZIE K. HIRONO, Hawaii
MARY FALLIN, Oklahoma
JASON ALTMIRE, Pennsylvania
VERN BUCHANAN, Florida
TIMOTHY J. WALZ, Minnesota
BRETT GUTHRIE, Kentucky
HEATH SHULER, North Carolina
ANH JOSEPH CAO, Louisiana
MICHAEL A. ARCURI, New York
AARON SCHOCK, Illinois
HARRY E. MITCHELL, Arizona
PETE OLSON, Texas
CHRISTOPHER P. CARNEY, Pennsylvania
TOM GRAVES, Georgia
JOHN J. HALL, New York
STEVE KAGEN, Wisconsin
STEVE COHEN, Tennessee
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. MCMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia
(II)
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SUBCOMMITTEE
ON
AVIATION
JERRY F. COSTELLO, Illinois, Chairman

RUSS CARNAHAN, Missouri
THOMAS E. PETRI, Wisconsin
MICHAEL E. MCMAHON, New York
HOWARD COBLE, North Carolina
PETER A. DEFAZIO, Oregon
JOHN J. DUNCAN, JR., Tennessee
VERNON J. EHLERS, Michigan
ELEANOR HOLMES NORTON, District of
FRANK A. LOBIONDO, New Jersey
Columbia
JERRY MORAN, Kansas
BOB FILNER, California
SAM GRAVES, Missouri
EDDIE BERNICE JOHNSON, Texas
JOHN BOOZMAN, Arkansas
LEONARD L. BOSWELL, Iowa
SHELLEY MOORE CAPITO, West Virginia
TIM HOLDEN, Pennsylvania
JIM GERLACH, Pennsylvania
MICHAEL E. CAPUANO, Massachusetts
CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois
CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii
LYNN A. WESTMORELAND, Georgia
HARRY E. MITCHELL, Arizona
JEAN SCHMIDT, Ohio
JOHN J. HALL, New York
MARY FALLIN, Oklahoma
STEVE COHEN, Tennessee
VERN BUCHANAN, Florida
LAURA A. RICHARDSON, California
BRETT GUTHRIE, Kentucky
JOHN A. BOCCIERI, Ohio
NICK J. RAHALL, II, West Virginia
CORRINE BROWN, Florida
ELIJAH E. CUMMINGS, Maryland
JASON ALTMIRE, Pennsylvania
SOLOMON P. ORTIZ, Texas
MARK H. SCHAUER, Michigan
JOHN GARAMENDI, California
DINA TITUS, Nevada
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(III)
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CONTENTS
Page
Summary of Subject Matter ....................................................................................
vi
TESTIMONY
Baldanza, Ben, President and Cheif Executive Officer, Spirit Airlines, Inc. .....
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S. Government
Accountability Office ............................................................................................
Mitchell, Kevin, Chairman, Business Travel Coalition ........................................
Moore, Kyle, Vice President, Marketing, Sabre Holdings, and on behalf of
the Interactive Travel Services Association, American Society of Travel
Agents, Consumer Travel Alliance .....................................................................
Ridley, Dave, Senior Vice President, Marketing and Revenue Management,
Southwest Airlines ...............................................................................................
Rivkin, Robert S., General Counsel, U.S. Department of Transportation ..........
2
2
2
2
2
2
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Cohen, Hon. Steve, of Tennessee ............................................................................
Costello, Hon. Jerry F., of Illinois ..........................................................................
Mitchell, Hon. Harry E., of Arizona .......................................................................
Oberstar, Hon. James L., of Minnesota .................................................................
Petri, Hon. Thomas E., of Wisconsin .....................................................................
40
41
48
49
53
PREPARED STATEMENTS SUBMITTED BY WITNESSES

Baldanza, Ben ..........................................................................................................
Dillingham, Dr. Gerald ...........................................................................................
Mitchell, Kevin .........................................................................................................
Moore, Kyle ..............................................................................................................
Ridley, Dave .............................................................................................................
Rivkin, Robert S. ......................................................................................................
61
72
132
138
152
158
SUBMISSIONS FOR THE RECORD

Baldanza, Ben, President and Cheif Executive Officer, Spirit Airlines, Inc.,
response to request for infmoration from Hon. Costello, a Representative
in Congress from the State of Illinois .................................................................
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S. Government
Accountability Office, supplementary report entitled, Commercial Aviation,
Consumers Could Benefit from Better Information about Airline-Imposed
Fees and Refundability of Government-Imposed Taxes and Fees ..................
Ridley, Dave, Senior Vice President, Marketing and Revenue Management,
Southwest Airlines, response to request for infmoration from Hon. Costello,
a Representative in Congress from the State of Illinois ...................................
Rivkin, Robert S., General Counsel, U.S. Department of Transportation, response to request for information from Hon. Duncan, a Representative
in Congress from the State of Tennessee ...........................................................
33
82
035
29
ADDITIONS TO THE RECORD

Consumers Union, William J. McGee, written statement ....................................
FlyersRights.org, Kate Hanni, Executive Director and Spokesperson, written
statement ..............................................................................................................
National Business Travel Association, written statement ...................................
(V)
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HEARING ON AIRLINE FEES

Wednesday, July 14, 2010
HOUSE OF REPRESENTATIVES,
TRANSPORTATION AND INFRASTRUCTURE,
SUBCOMMITTEE ON AVIATION,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:04 p.m., in room
2167, Rayburn House Office Building, the Honorable Jerry F.
Costello [chairman of the Subcommittee] presiding.
Mr. COSTELLO. The Subcommittee will come to order. The Chair
will ask all Members, staff, and everyone to turn electronic devices
off or on vibrate.
The Subcommittee is meeting today to receive testimony regarding airline fees. I intend to give a brief opening statement and then
call on Mr. Petri to give an opening statement or his remarks.
I might mention that we are going to have votes at 2:45. We
were just notified. So what I think I will do is first welcome everyone to the hearing today. Secondly, I want to especially recognize
and thank the families of Colgan Flight 3407 for being with us
today and for their steadfast support for improving pilot training
and safety in the industry.
With that, Mr. Petri, in order to move things along so that we
can get to our witnesses, I will enter my entire statement into the
record. But before I recognize you for your opening statement, I
would ask unanimous consent to allow two weeks for all Members
to revise and extend their remarks and to permit the submission
of additional statements and materials by Members and witnesses.
With that, my entire statement will appear in the record without
objection.
The Chair recognizes Mr. Petri.
Mr. PETRI. Thank you very much, Mr. Chairman. And to demonstrate how effective your leadership of this panel is, I will ask
unanimous consent that my statement be entered into the record.
Mr. COSTELLO. Without objection, so ordered.
Obviously, we are trying to get to the witnesses to hear your testimony before we are interrupted for votes; that is why we have entered our statements into the record.
Let me now recognize our witnesses today. First, Dr. Gerald
Dillingham, who is the Director of Civil Aviation Issues with the
U.S. Government Accountability Office; Mr. Robert Rivkin, who is
the General Counsel with the United States Department of Transportation; Mr. Ben Baldanza, who is the President and CEO of
Spirit Airlines; Mr. Dave Ridley, who is the Senior Vice President
of Marketing and Revenue Management, Southwest Airlines; Mr.
COMMITTEE
ON
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Kevin Mitchell, Chairman, Business Travel Coalition; Mr. Kyle
Moore, who is the Vice Presidente of Marketing, Sabre Holdings,
and on behalf of The Interactive Travel Services Association, American Society of Travel Agents, Consumer Travel Alliance as well.
With that, I will now recognize Dr. Dillingham. As is the policy
of this Subcommittee, we would ask that you summarize your written testimony that you have submitted to the Subcommittee and
try and summarize your statement in five minutes so that we will
have time to ask questions.
With that, the Chair now recognizes Dr. Dillingham.
TESTIMONY OF DR. GERALD DILLINGHAM, DIRECTOR OF
CIVIL AVIATION ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; ROBERT S. RIVKIN, GENERAL COUNSEL,
U.S. DEPARTMENT OF TRANSPORTATION; BEN BALDANZA,
PRESIDENT AND CEO, SPIRIT AIRLINES, INC.; DAVE RIDLEY,
SENIOR VICE PRESIDENT, MARKETING AND REVENUE MANAGEMENT, SOUTHWEST AIRLINES; KEVIN MITCHELL, CHAIRMAN, BUSINESS TRAVEL COALITION; AND KYLE MOORE,
VICE PRESIDENT, MARKETING, SABRE HOLDINGS, AND ON
BEHALF OF THE INTERACTIVE TRAVEL SERVICES ASSOCIATION, AMERICAN SOCIETY OF TRAVEL AGENTS, CONSUMER
TRAVEL ALLIANCE
Mr. DILLINGHAM. Thank you, Mr. Chairman, Mr. Petri, Members

of the Subcommittee. My statement today summarizes the findings
of GAOs study of aviation-related fees and their potential impact
on the Airport and Airway Trust Fund and the flying public.
Our full report was published this morning on the GAOs
website. This study addressed four questions: first, what are the
nature and scope of these fees, including the fees relationship to
the cost of the services provided and their degree of transparency;
second, what is the potential impact of such fees on revenues used
to help fund FAA through the Trust Fund; and, third, how have
the fees affected the number of checked bags and airline policies
associated with checked and mishandled bags; and, lastly, what
processes are available for refunding government-imposed taxes
and fees to passengers who do not use their non-refundable tickets.
With regard to the nature and scope of the fees, starting in about
2007, airlines began to charge for many services for which separate
charges did not previously exist, such as first and second checked
baggage, carry-on bags, meals, blankets, and seat selection. Prior
to 2007, the flying public generally considered these kinds of services were included in the price of the ticket. Since these services
were unbundled and fees established, the revenues from these fees
have become an important part of the profit and loss statement of
many airlines.
During 2008 and 2009, U.S. passenger airlines posted operating
losses of about $4.4 billion; however, during that same period airlines reported fee revenues of at least $7.9 billion. This $7.9 billion
represents only a portion of the revenues that were generated from
optional fees. According to airline officials, the fees are based on a
combination of factors, including the cost of providing the services,
competition, and consumer demand.
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I think it is worth noting that the fees are not assessed equally.
For example, some passengers, such as business class and elite frequent fliers, do not pay for certain services such as checked bags
and early boarding. In addition, airline operational fees are not
fully transparent. Specifically, DOD does not require the disclosure
of most of these fees by airlines or ticket distribution channels that
are used by consumers. Therefore, consumers cannot readily compare the total cost of flights offered by different carriers.
With regard to the potential impact of these fees on the Trust
Fund, the IRS has determined that many of the fees that have
been established by airlines are not related to the transportation
of a person; therefore, they are not subject to the 7.5 percent excise
tax which would be deposited into the Trust Fund. However, if
checked bag fee revenues that airlines reported in fiscal year 2009
had been subject to the excise tax on domestic travel, it would have
generated about $186 million, or somewhat less than 2 percent of
the Trust Fund revenues for 2009.
With regard to our question on checked baggage issues, since the
airlines established check baggage fees, the number of checked
bags per passenger and the rate of mishandled bags have both declined. According to airline officials that we talked to, their airlines
have generally not changed their baggage handling policies or their
compensation methods. Consequently, it would be reasonable to
conclude that the decline in the number of checked bags was likely
a factor in the decline in the rate of mishandled bags.
Finally, regarding the processes available for refunding government taxes and fees to passengers who do not use their non-refundable tickets, government taxes and fees include a 7.5 percent excise
tax, a September 11 security fee, and various inspection fees. We
found that the refundability of these taxes and fees on unused,
non-refundable tickets varies depending on the tax and the fee. We
also found that clear information was not generally available to
consumers about the eligibility of refund for these fees and taxes.
Mr. Chairman and Members of the Subcommittee, to address the
issues that we identified through this study, our report contains a
matter for congressional consideration on the taxation of optional
fees and six recommendations to various fellow agencies that generally focus on disclosure and transparency issues. Thank you, Mr.
Chairman.
Mr. COSTELLO. Thank you, Dr. Dillingham.
The Chair now recognizes Mr. Rivkin.
Mr. RIVKIN. Chairman Costello, Ranking Member Petri, and
Members of the Committee, thank you for the opportunity to appear before you to discuss airline fees.
Secretary Ray LaHood is committed to protecting the interests of
airline consumers. During this Administration, the Department has
implemented a number of initiatives to further that commitment.
Last December we established a new foundation in consumer protection through a rule that attacked several persistent and pernicious practices, including lengthy tarmac delays, chronically delayed flights, and lack of consumer information about on-time performance. In the last year we issued 37 cease and desist orders
against airlines and agents, assessing more than $3 million in civil
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penalties, and we are very focused on the impact of new airline fees
on consumers.
We believe that the proliferation of these fees and the manner
in which they are presented to the traveling public can be confusing and, in some cases, misleading. Many travelers still expect
that the basics of air travel are included in the ticket price, but
that is no longer the case. The published fare used by many consumers to choose a flight does not clearly represent the actual cost
of travel once the new fees are added. These include fees for services that used to come included in the fare, like checking bags, carrying bags onboard, and now even getting soft drinks. As a result,
it is difficult for consumers to compare fare offerings and make rational economic decisions based on the full cost of their travel.
We believe consumers should have complete information about
the full cost of their trip at the time they make their decisions
about travel. We believe that information should be presented in a
clear, straightforward way so that consumers can make informed
decisions. The Department recently issued a Notice of Proposed
Rulemaking that would apply these basic principles of transparency and fairness to the airline industrys new fee structure,
among other consumer protections proposed. On fees, here is what
we proposed:
First, we would require true, full price advertising. Advertised
tickets would be required to include all mandatory taxes, fees, and
charges. If you have to pay a charge to fly, like what some airlines
call a fuel surcharge or a convenience fee, it must be included in
the total price presented to the consumer.
Second, we propose that airlines optional fees be fully disclosed
on airline websites. By optional fees we mean charges for things
like checking baggage or seat assignments that passengers can
choose to avoid and yet still fly. We would also require more detailed and prominent disclosure for fees related to carry-on and
checked bags, and that such fees be affirmatively agreed to by the
consumer with no opt-out requirements or shenanigans.
Third, we propose to require reimbursement of baggage fees
when the bags are not delivered or not delivered on time.
Fourth, we are seeking comment on a proposal that airlines report both a full fare, the carriers base fare plus the mandatory
charges, as well as what we have referred to as full fare plus,
which would be the full fare ticket price plus the cost of baggage
charges that consumers are traditionally used to seeing included in
the price of the ticket. We are seeking comment on that; we havent
made any determination of what the Department thinks is appropriate.
And, fifth, the Department proposes to require airlines to provide
their agents and global distribution systems complete, accurate,
and up to date information on ancillary fees so that the information
is readily available to consumers.
Among other key provisions of the rule unrelated to fees, we also
propose to increase compensation and transparency for bumped
passengers and to require airlines to allow cancellation of a reservation without penalty within 24 hours of booking a flight.
Our proposed rule addresses most, but not all, the recommendations of the General Accountability Office report that was released
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today. One recommendation in the report involves the TSA $2.50
security fee that is imposed per flight segment, up to $10.00, to
cover the cost of screening and related services, as well as other
fees imposed by government agencies. Although these fees are beyond the scope of our current rulemaking, we would be happy to
work with you and the GAO on this issue.
We are committed to acting swiftly to try to complete the rulemaking by the end of this calendar year.
In closing, I want to thank this Committee for invigorating our
consumer protection program. Your leadership and support have
enabled us to redouble our efforts to protect consumers. We are
committed to the mission you have given us and we look forward
to continuing to work with you. I would be happy to answer any
questions you may have, and I ask that my written statement be
made part of the record. Thank you.
Mr. COSTELLO. Thank you, Mr. Rivkin. You have made mention
of Secretary LaHood and the action that he has taken thus far. We
applaud him for his swift action and look forward to working with
you on these issues.
The Chair now recognizes Mr. Baldanza.
Mr. BALDANZA. Chairman Costello, Mr. Petri, and the Subcommittee, thank you for the opportunity to appear today in connection with the review of airline fees. Spirit Airlines is based in
Fort Lauderdale, Florida. We currently have a fleet of 31 aircraft
serving 44 cities in the U.S., the Caribbean, Central and South
America. We carry approximately 6.5 million passengers a year,
and over the next five years will add 35 new aircraft to meet the
growing demand for our unique ultra low cost carrier service.
Spirit believes that unbundling, and by that I mean separating
out optional customer services from the fare that are not essential
to transporting a passenger, allows the customers the choice to purchase services or not, and this benefits the traveling public through
lower total cost. This approach generates increased tax revenue by
stimulating more travel. These unbundled services do not impose
any cost on airport infrastructure, on the Nations air traffic control
system or any other government services funded by the aviation
Federal excise tax. As such, no additional tax burden should be imposed on the cost of these ancillary services.
Over the past decade, the U.S. airline industry has lost approximately $60 billion in light of a continuing weak economy and reduced demand for air transportation, as well as volatile and uncertain fuel prices. Imposing additional taxes on the industry and its
passengers will be counterproductive and result in less, rather than
more, tax revenue.
In 1978, Congress passed the Airline Deregulation Act, which
stressed competition as the way to stimulate efficiency, innovation,
and low prices. Spirit Airlines takes this policy to heart. Our goal
is to offer consumers a real choice in selecting an airline for their
travel needs. Since 2007, when we adopted our unique Ultra Low
Cost Carrier, or ULCC, business model to provide basic air transportation at the lowest possible price, in every market Spirit serves
it provides an important public interest service by disciplining
fares.
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Spirits impact was clearly demonstrated when our pilots went on
strike last month and other carriers, including low fare carriers,
immediately raised prices. For example, Jet Blue raised its roundtrip fare in the Fort Lauderdale-San Juan, Puerto Rico market. We
and Jet Blue are the only carriers who serve that market nonstop.
They released their fare from under $200 to over $600, while at the
same time putting out a press release saying that they were helping Spirits customers.
In an effort to make airfares as low as possible, in 2007, Spirit
unbundled the charge for checked bags and, despite rising fuel
costs, lowered our base fare to adjust for the unbundling. This
April we announced our decision to charge for carry-on luggage
that is too big to fit under the seat beginning on August 1st. This
charge does not apply to such items as medical equipment, baby
strollers, and the like. Carry-on bags have become a nightmare for
passenger boarding and deplaning; they create a safety risk for
both passengers and flight attendants, and lead to costly flight
delays.
Carrying more than one bag is not necessary for all travelers,
and we believe it is unfair to charge those customers for extra services they do not use. The carry-on fee for most passengers is $20
to $30, and Spirit reduced its base fares by about $40 to offset
these charges. Spirit also lowered its checked bag charge to encourage passengers to check their bags. The carry-on fee has not affected Spirits bookings because the total cost to customers for travel on Spirit remains far lower than on other airlines.
As a group, low fare carriers already pay a greater percentage of
the total ticket cost in taxes than do the higher fare legacy carriers.
This is because much of the tax burden on airlines is in fixed
charges. On a domestic flight, these include an addition to the 7.5
percent excise tax, a $3.70 segment fee, $2.50 September 11 fee,
PFCs at airports of up to $4.50, and a 4.3 cents per gallon commercial fuel tax. So, for example, on a 300 mile trip with $180 roundtrip fare, the customer could pay a total of about $35.40 in taxes,
or 20 percent of the fare, including the Federal excise tax.
Since Spirit has the lowest fares in the industry, our lower income passengers are already effectively paying the highest taxes as
a percentage of the total fare. This is an unfortunate and highly
regressive result of the existing tax structure. Our average fare is
under $85. Most of the industry is well over $100. And our passengers pay over $11 in Federal excise tax between the ticket price
and the fuel, or 13 percent on this amount just for the ticket, tax,
and fuel.
The primary impact of charging for nonessential ancillary services will be to raise prices for all consumers and thereby dampen
travel demand and likely result in less total government excise tax
revenue. At a time when the industry has serious financial issues
and the Secretary of Transportation has formed a commission on
how to strengthen the industry for the benefit of employees, consumers, and shareholders, it would be counterproductive to impose
yet another tax burden.
As noted, the services Spirit has unbundled do not involve activities that drive up the cost of air traffic control or other services
paid for by the Aviation Trust Fund. They are not charges for the
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transportation of any person. For example, the handling of checked
bags impose high labor cost on the airline but doesnt touch air
traffic control. Another non-transportation ancillary fee for flight
charges involving non-refundable tickets covers the cost imposed on
the airline by such a change. These include both the direct cost for
the time of the reservation agents and the potential lost revenue
from empty seats. Passengers who want to avoid such fees can purchase a higher priced refundable ticket or purchase low cost travel
insurance.
Recent articles in the press based on a first quarter DOT report
said Spirit had the highest ancillary revenue as a percent of total
revenue. We believe this comparison is highly misleading. Spirits
percentage of ancillary revenue to total revenue is higher than
other carriers simply because our fares are so low. For example, if
Spirit had the same average fares as American Airlines, our percentage of ancillary fees would only be 14 percent.
Over 70 percent of Spirit revenue that comes from ticket sales
is subject to the aviation excise tax. Of the 25 percent of the revenue that could be labeled ancillary, about 60 percent is related to
an itinerary. Of this, about 50 percent is from baggage fees and 10
percent from seat selection fees. So, in total, only about 15 percent
of Spirit total revenue is from ancillary fees selected by passengers
in connection with their travel.
We are certain that Spirits decision to unbundle services not essential to the transportation of services have had minimal, if any,
negative impact on the total excise taxes paid for travel on Spirit.
This is because our lower fares have enabled more people to fly, despite the difficult economy of the last several years. Imposing excise taxes on these fees will simply raise fares, dampen the publics
ability to afford travel, and therefore result in lower overall tax
revenue.
Lastly, Spirit firmly believes that customers deserve to have access to as much information as reasonably available on the cost of
their travel. Spirits website provides information on all of its
charges, and customers can see the total cost of their flights, including all optional services they have selected, before confirming
their purchase. This makes it easy for customers to comparison
shop to confirm that Spirits total price is still the lowest.
Unfortunately, under the DOT policy, airlines must include the
Federal excise tax as part of the base fare, so this tax is hidden
from the customer. We are not aware of any retailer of a retail
product where, by government fiat, merchants are prevented from
showing customers how much of their payment is for tax.
In closing, I would like to note two of the particularly onerous
proposed new rules recently announced by the DOT. First, after
decades of permitting airlines to list certain government taxes and
fees separately from the base fare in advertising, the Department
proposes to require airlines to include all applicable taxes and fees
in the advertised fare. This new requirement will further obfuscate
the portion of the ticket price going to the government. We believe
Congress should direct the Department to permit airlines to display fares on their websites in a totally transparent way so customers can immediately see the full tax component of their fare.
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Secondly, the Department proposes to require that all airlines
allow customers to hold a booking without payment or allow booking to be canceled without charge for at least 24 hours, even for
non-refundable tickets. Many of our promotions are for one-day
sales only. Allowing a 24-hour hold would circumvent the sale, resulting in a term which adds lower revenue and means higher
fares.
Also, holding the fare for 24 hours allows customers to take away
valuable selling time, potentially resulting in an empty seat. Most
low fare carriers, including Southwest, do not permit either of
these options for non-refundable tickets. Such a rule would require
substantial and costly changes in our IT reservation system, as
well as changing the contract with our credit card processing agent.
As noted, on Spirit, passengers can shop and compare prices before
they buy.
In conclusion, we believe ancillary fees and other consumer protections, Congress must be guided by the objectives established by
the Airline Deregulation Act, namely, the encouragement of innovation, competition, and the expansion of low fare service. Tax revenue should be generated by promoting economic expansion and
taking steps to encourage more people to fly.
Imposing new taxes on fees for nonessential customer services
unrelated to costs imposed by the system must be avoided. Such
taxes would surely harm competition, raise costs, and slow the industrys require from a decade of losses. In addition, Congress
should look carefully at the new rules proposed by the DOT. Rules
that benefit few customers but raise costs for all should not be imposed on the industry. Such rules create inefficiency, reduce innovation, and lead to higher fares.
Thank you for your consideration.
Mr. COSTELLO. Thank you.
The Chair now recognizes Mr. Ridley.
Mr. RIDLEY. Chairman Costello, Ranking Member Petri, and
Members of the Subcommittee, thank you for inviting Southwest
Airlines to testify at todays hearing. My name is Dave Ridley, and
I am Senior Vice President of Marketing and Revenue Management. I have been a Southwest employee since 1988. In my role,
I am accountable for the companys top line revenue performance.
My responsibilities include, among other things, pricing, advertising, and the maintenance of our brand image as Americas leading low fare, high customer service airline.
Today, Southwest is the Nations largest airline in terms of domestic passengers, carrying more customers than any other U.S.
airline. We now carry over 100 million passengers a year, serving
69 cities in 35 States. We are the most heavily unionized airline
in the Country and we are the only airline that has not had an involuntary furlough of an employee since our inception in 1971.
After 39 successful years in the airline business, Southwest continues to look for ways to differentiate ourselves from other airlines
beyond our consistently low fares and our great customer service.
Most recently we chose to make our affordable, transparent, and
easy to understand pricing structure a focal point in winning the
hearts and minds of the flying public by not following the industry
trend toward nickel-and-diming of our customers. Our overriding
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philosophy at Southwest Airlines is to not charge customers for
things they have historically received for free. That is why Southwest is committed to low fares with no hidden fees. What you see
is what you pay.
When you book a ticket on Southwest, you will not pay a fee to
check your first or second bag, or to carry on a bag, for that matter;
you will not pay a fee to check your bags curbside; you will not pay
up to $150 to change your reservation; you will not pay a fee to
sit in a window or aisle or an exit seat; you will not pay a fee to
make your reservation over the phone; and you will not pay a fuel
or peak travel surcharge fee, either. And, as always, snacks, sodas,
smiles, and the occasional bad jokes are all complimentary at
Southwest Airlines.
Our position on fees aligns our corporate goal to generate positive financial results with the passion of our people to provide good
customer service. We listen to our people. They, in turn, do not shy
away from telling us exactly what they think. Our people told us
that they dont want to nickel-and-dime their customers.
Allowing our people to do what they do best in a customer-friendly way is just one reason why, since 1987, when the Department
of Transportation began tracking customer satisfaction statistics,
Southwest has consistently led the entire airline industry with the
lowest ratio of complaints per passengers boarded. This is further
evidence that our policy of not nickel-and-diming is not a gimmick;
it is good business and it makes our people feel better about who
they are and what they do.
Due in large part to our Bags Fly Free campaign, Southwest has
experienced a domestic market share shift worth close to $1 billion
since the introduction of this campaign. As a result, our customers,
employees, and shareholders have been the beneficiaries of this decision.
While we are not fans of fees for services that historically have
been part of the base fare, we believe strongly that the decision on
whether or not to charge a fee for an airline product or service is
a business decision best made by each individual airline. Southwest
made the conscious decision to limit our customers exposure to
what we view as unreasonable and annoying fees. That was our
choice. Other airlines have chosen a different business model and
should have every right to do so.
However, we do think the Federal Government should focus on
ensuring the full disclosure of any and all fees to consumers, making sure that airfares are advertised fairly and honestly. Only an
informed consumer can make apples-to-apples fare comparisons,
which allows them to shop for a flight that best meets their needs
and preferences. To protect the traveling public, fees should be
prominently disclosed to consumers wherever tickets are sold. We
generally agree that the fee-related elements of the DOTs NPRM
would achieve this goal.
On behalf of Southwest Airlines, thank you for this opportunity
to testify, and I would be happy to answer any questions.
Mr. COSTELLO. Thank you, Mr. Ridley.
The Chair now recognizes Mr. Mitchell.
Mr. MITCHELL. Mr. Chairman, Ranking Member Petri, and Members of the Subcommittee, thank you for inviting the Business
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Travel Coalition to appear before you today to represent passenger
and corporate managed travel interests on airline product
unbundling and fees.
Todays hearing is critically important because of the potential
for consumer abuse in this fast changing, unbundled marketplace
for airline services. BTC is not against unbundling as a matter of
principle, but, rather, it is opposed to the absence of full disclosure
of all add-on fees and charges such that all consumers cannot make
genuine apples-to-apples comparisons of all-in airline fares.
Without timely and complete airline disclosure of an increasing
array of add-on charges to global distribution systems and the travel agencies that they automate, consumers deprived of all-in information will become as economically trapped by airlines as they
would be physically trapped during a seven hour tarmac delay. The
need for consumer protection in this area is acute, but the remedy
need not be burdensome.
The highlights of BTCs survey results of 188 travel industry experts released yesterday are revealing of a sea change in thinking
about Government oversight in commercial air transportation. Consider: 100 percent of corporate travel managers indicated that
unbundling and extra fees have caused serious problems in their
manage travel programs; 86 percent believes that airlines, absent
Government rules, will not make fare adequate and readily accessible disclosure of their add-on fees and charges so that travel managers and their travel management companies can do comparison
shopping of the all-in prices for air travel across carriers; and 95
percent support the proposal that the USDOT require airlines to
make add-on data available and easily accessible to the travel
agency channel through any GDS in which that airline or an airline has agreed to participate.
These survey participants, I should point out, are business people
who do not generally favor government intervention in a marketplace. However, they see a market failure coming at them with the
speed and impact of a Stephen Strasburg fast ball to the side of
the head. With across-the-board unbundling of air travel services,
and absent the government empire stepping in, consumers will not
have the ability to evaluate the full price of air travel options available to them. For decades, the transparency of airfare information
through all channels has been a marvel of modern technology and
has benefitted consumers immeasurably.
Unbundling without disclosure threatens to catapult us out of
the 21st century and back into an opaque Stone Age where a telephone, calculator, pen and paper, and a lot of unproductive time
were needed to figure out how to compare airline services. Add-ons,
like checked bags, are material to air transportation the way a
chair is material to a restaurant meal. What some airlines are
doing is akin to a restaurant advertising a $20 business persons
luncheon special and then surprising the patron with a $10 addon fee for use of a chair when handed the menu. The patron is
given partial information and essentially tricked into coming to the
restaurant. The stakes, of course, are much higher at the airport
for families and businesses on tight budgets, which is why you are
having this hearing today.
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Of significance is that major airlines remain at a 30 to 35 percent cost disadvantage vis-a-vis the low cost carriers and, as such,
cannot offer the kinds of across-the-board low fares that the low
cost carriers do. There is, therefore, a motivation present to obfuscate the true all-in price by keeping fares opaque and especially resisting efforts to have fees and fares displayed transparency for
travel agents via the global distribution systems.
Importantly, the Airline Tariff Publishing Company has a new
airline-tested data system ready to facilitate the loading of add-on
fares in the global distribution systems. However, not a single
major U.S. airline has signed on, to BTCs knowledge, to permanently use this new system because the first airline to do so would
likely show all-in higher airfares of 30 percent or more compared
with its competitors.
This is an industry where a few dollars can make a difference
for a consumer in choosing one airline over another, so no one airline can rationally be expected to make the first potentially suicidal
move. That is why a reasonable measure of Government help is
needed, to ensure that all airlines jump together for the benefit of
consumers. Moreover, except to the extent that Congress or DOT
mandates specific consumer protections, airline passengers are
without legal rights and remedies because of Federal preemption
and a lack of FTC oversight in this area.
In conclusion, Mr. Chairman, the International Airline Passengers Association, IAPA, and its 400,000 members, join BTC in
encouraging this Committee to urge the DOT in its NPRM to require airlines to make add-on fare data easily accessible not only
on their own websites, but also to the travel agency channel
through any GDS in which an airline has agreed to participate.
Congress could also provide this relief in the FAA Reauthorization
Act through Senator Menendezs sensible disclosure proposal. Either way, consumers would finally have the batting helmet needed
to step up to the plate confidently in todays unbundled marketplace.
Thank you, and I look forward to your questions.
Mr. COSTELLO. Thank you, Mr. Mitchell.
The Chair now recognizes Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
Sabre Holdings owns both Sabre Travel Network, the part of our
business that runs the Sabre GDS, and Travelocity, one of the Nations largest and most popular online travel companies.
Today in my testimony, I am representing three groups: The
Interactive Travel Services Association, the trade association for
online travel companies and GDSes; the American Society of Travel
Agents, the largest association of professional travel retailers in the
world; and the Consumer Travel Alliance, a nonprofit member of
the Consumer Federation of America created to inform and educate
legislators and regulators about policy decisions about consumer
travel. I am responsible for the systems that manage the sale of air
travel across all channels where airlines distribute through Sabre,
which has recently been heavily focused on airline unbundling.
Up until recently, air travel shopping in the U.S. has been one
of the closest things you will find to an Adam Smith perfect marketplace. Consumers have enjoyed access to near perfect informa-
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tion on air products and prices. Through the Internet, travelers can
shop anytime, day or night; and the prices, while constantly changing, are also constantly updated. They can book when they feel the
product is appropriately priced for themselves, and travelers are
extremely price sensitive. The vast majority of travelers select air
travel at or very near the lowest fare offered.
Unfortunately, that perfect model is now broken. Mr. Mitchell
and the rest of the panelists outlined this very well, but, in short,
with the removal or repackaging of many services from what has
traditionally been included in the fare, shoppers have a very difficult time finding out the true cost of travel for their proposed
trips. They are left to find out the true cost only when they have
completed the return flight for their trip, when they have paid for
the last baggage fee and picked their seats for themselves and their
families, to the painful surprise of blown budgets.
Consumer Travel Alliance has just released information that outlines the impact on consumers from hidden fees, with effective
price increases of 20, 40, 60 percent and higher. But it doesnt have
to be this difficult or harmful. Solutions are coming online that will
bring back transparency for the consumers. But this can only happen if the airline community makes information on ancillary fees
readily available. Let me repeat that. It can only happen if the airline community makes information on ancillary fees readily available, something that ITSA, ASTA, and CTA strongly believe the
airlines should be compelled to do.
A broad collection of airlines, agencies, GDS, and standard setting bodies such as ATPCO, ARC and IATA have outlined how the
information for ancillaries can be shared within the industry.
ATPCO, the airline-owned fare clearinghouse, has adapted their
systems to support ancillary fee information with the same level of
specificity that airlines have for base fares. Targeting the ancillaries to specific dates, routes, flights, fares, traveler groups, corporations or agencies, and many, many, many, many other variables.
At Sabre, we are on the cusp of being able to make this information available to the shopper as they shop, whether online or
through a traditional travel agent. At the end of this month, Sabre
is poised to introduce the ancillaries and their prices into the shopping workflow of the traditional travel agent.
In referencing the graphic you see in front of you, next month we
will take this a step further, a big step, enabling it in the low fare
search process. Low fare search is something you would liken to online shopping, where you ask for flights and fares for your desired
departure and return dates. Next month we will allow shoppers to
choose what ancillaries are important to them for their trip. If they
believe they are going to need to check a couple of bags, they can
specify that up front. If they are traveling with their family, they
can indicate the need to be able to select seats together. The system then finds the lowest fares that meet those specific needs, inclusive of the ancillaries, giving the consumer the total price for
their trip, with no surprises at the airport.
These standards can solve yet another problem: that todays corporations and agencies have virtually no ability to manage where
the money is going. The systems can fix that too. And it is impor-
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tant to note that Sabre and the rest of the industry are all going
down this path concurrently.
Of course, all of this only happens if the airlines are compelled
to provide that information to the channels that represent approximately half of the air travel sold in the United States. Absent this,
consumers will invariably selecting flights only to find that things
werent as they appeared on their screen.
And, to be clear, this isnt about compelling an airline to participate in the GDSes. Airlines have the choice to participate or not.
This doesnt change that at all. This is unequivocally about the consumer. If the airline chooses to sell through the GDSes, the airline
should show the consumers their full prices, not something that
dramatically understates the real price travelers pay.
Finally, airlines have a powerful disincentive to actually provide
this information to consumers, as this gives that last holdout airline the added advantage of appearing lower priced than their competitors, who might actually be providing the information on their
full cost. This is why the Government must step in. We dont believe airlines will do this on their own. We at ITSA, ASTA, and the
CTA believe it is important that those airlines selling the GDSes
provide the information in a way that allows consumers to shop
with full knowledge of and confidence in the travel costs in total,
as you can see above.
At the same time, consumers deserve the opportunity to know
what to expect when they are buying. In this manner, the cost of
compliance for the airlines are negligible and the benefits are enormous. And I too thank you for your time.
Mr. COSTELLO. The Chair thanks you, Mr. Moore, and now recognizes the distinguished Member of the Full Committee, Chairman
Oberstar.
Mr. OBERSTAR. I greatly appreciate your holding this hearing,
Mr. Chairman, and the participation of Mr. Petri as well.
There are few issues of more lively interest to air travelers than
these checked baggage fees and other fees that airlines are charging. Hardly a weekend goes by in my travels that I am not asked
by passengers: Arent you going to do something about these fees?
Cant something be done about these fees? Well, we are starting.
We are at least having a hearing. We started with Mr. Costello and
I asking GAOthank you, Dr. Dillingham, for your very thorough
reportto evaluate and report to us.
I would say it looks to me like the airlines are learning from
units of government. It is a back door price increase. It is not a tax
if it is a fee. If you call it a fee, it is not a tax, so you can impose
these taxes with impunity by calling them a fee. That is just back
door financing.
Look, passengers are paying for meals, for pillows, for blankets,
for headphones, for beverages, to check the luggage, and some or
at least one airline proposed a carry-on luggage fee. In Europe, a
low fare carrier proposed a fee for using the potty on board the airplane. That didnt last very long, but at least they proposed that
up front.
And then you have premium services, early boarding and early
access to overhead space. But there is never anybody on board
those planes, flight attendant or others, who say, no, no, you are
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in row 24, you cant park your bag in row 3. They can do these
things themselves, but they arent doing it.
In 2009, US Airlines collected $7.8 billion in fees, $2.7 billion of
which is from checked baggage. The first quarter of this year, $770
million in checked baggage fees, while the network carriers are losing money and the industry, as a whole, reported a profit of only
$12 million.
So, look, you have additional effect. And I make it a point, Mr.
Chairman, every airport I go through, I talk to the TSA agents.
What does this mean for you, the fee for checked baggage? Well,
it means more carry-ons, more densely packed carry-ons, and
carry-ons that are more difficult too screen, thus taking us longer
to screen and more difficult to find things that are jammed in and
packed in. We frequently have to have backup TSA persons to read
and back up the primary screener. I found that all around the
country.
Those are hidden consequences of this rush to bag more money
by imposing fees for bags. And then those fees are not subject to
the airline ticket tax. And, as the GAO report indicated, that could
be the equivalent of 2 percent of the revenues into the Aviation
Trust Fund, which benefits primarily the airlines, air traffic control, the facilities and equipment account, airport construction improvement program. All of that would benefit, but you have the airlines saying, well, we have lower ticket prices.
But if you add in the cost of all these charges that I listed a moment ago, those ticket prices are back up where they were before
the fees, and probably higher.
I think the GAO report recommendations of disclosure and some
of the testimony we have heard today at least is a starting point.
But I just want to say to the airlines, who I am sure are in great
number here or back in their offices listening in, if they dont exercise restraint, there is going to be a continuing outcry from the
traveling public and you are going to have some kind of regulation
that you wont like. So if you dont exercise self-restraint, then you
are going to get push-back from the traveling public, they will come
to the Congress, and then the Congress will act. And that is not
a threat, that is history.
Thank you.
Mr. COSTELLO. The Chair thanks you and now recognizes Mr.
Petri.
Mr. PETRI. Thank you very much.
I have a couple of questions for Mr. Rivkin, and maybe others
would care to respond. Focusing on fees and disclosure of fees on
airlines, what about discounts and undisclosed discounts? I mean,
the strategy of a lot of these airlines seems to have all these fees
and then to have affinity programs with lots of discounts, so if you
belong to this thing you dont pay for the bag or you get into a fast
find or you get free drinks, or you get 101 different perk, so to
speak, or upgrade and all.
I mean, is it legitimate to have a strategy that differentiates in
that way and unbundles, so that customers more or less get the
benefits and charges that they want to pay for, rather than one
size fits all?
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Mr. RIVKIN. Thank you for the question, Congressman Petri. The
focus of the Department of Transportation since deregulation has
been to ensure, to the extent we are able, with the great support
of this Committee and the Congress, that we can guard against unfair and deceptive practices, unfair methods of competition, and to
ensure safe and adequate transportation. All we are trying to do
is to fulfill that charge.
We have, as you know, a current rulemaking proposal, which I
cant discuss beyond describing it under the rules related to regulatory proposals, but if there are other suggestions that are not included within the scope of the rule that we have put forward,
which is rather broad, we would be very happy to consider them
in discussions with you or your staff.
Mr. PETRI. OK. I am really just kind of curious because I know
if you are a customer of Mr. Moore or someone else, and you knew
you flew four times with AirTran you could get a free first class
upgrade or you could save baggage charges or God knows what, or
some other airline, that might make a difference because you might
figure, well, we are taking several trips and it would be better to
go with the airline that would charge $5 more, but would give us
all these extra discounts.
So you are looking at extra charges, but you are not looking at
the other side of it in this disclosure, and it seems to me a lot of
these airlines have a strategy to try to capture the business and
higher price customer by giving the individual business traveler all
kinds of perks through these affinity plans that the boss is paying
for and might not even realize is going into this because he is making the decision; he has to choose between two trips and he will
choose the one that gets him the extra personal perks that he
would like.
Is that what they are doing or is this a problem, or is this something we should be addressing here in this Congress?
Mr. MOORE. I think it is a wonderful observation and I think it
is exactly right. But I also believe that this was an unintended consequence out of this. You had airlines that were introducing these
additional fees, but they did not want to anger their most loyal and
highest revenue-driving passenger, so they were waiving them for
that. That actual drove greater loyalty for those most loyal passengers, because now they had even greater differentiation in the
products and services that they could expect relative to somewhere
where they are not a loyal traveler.
And that really just kind of speaks to why all this stuff is so important. This has made it even more complex than it used to be,
and that is why consumers are unhappy. This is an incredibly complex process, and that is why we believe it is incredibly important
for the airlines to provide the information so that you can differentiate between those that may be frequent travelers versus not in
comparison shopping. The systems are ready to do that; we need
the data.
Mr. PETRI. OK, thank you.
I just have one other quick question. It is slightly unrelated to
the subject before us, but as long as Mr. Rivkin is here, we do have
a pretty strong rule currently to protect the traveling public, which
says if an airline stays more than three hours, I guess holds pas-
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sengers on the ground for more than three hours, there is this tremendous fine. We are starting to hear from various carriers that,
to avoid that, they are asking people, after about two hours, to get
off the plane, even though it might actually mean flights are more
delayed than they would otherwise be and people are, overall, more
inconvenienced.
So I am just curious as to whether you or the Department, people
dealing with this rule and its wise implementation, would be open
to sitting down and reviewing various ideas for fine-tuning it with
the idea of ending up conveniencing, rather than inconveniencing,
the traveling public so far as unanticipated delays are concerned.
Mr. RIVKIN. Of course we would be, Congressman. We just got
our first full month of comparative data, which showed that threehour tarmac delays are down substantially from, I believe, 34 a
year ago to 5 this last May. We are investigating those 5 and any
that we have become aware of that have occurred since then. We
are always looking for ways to improve on our regulatory responsibilities and would be very happy to work with you.
Mr. PETRI. Thank you.
Mr. DILLINGHAM. Mr. Petri?
Mr. PETRI. Yes.
Mr. DILLINGHAM. Just wanted to let you know that the GAO has
been asked by Committees of the Congress to evaluate the impact
and implementation of the rule, and, as Mr. Rivkin said, there has
only been a month of data to this point, and we are waiting on a
little more time to pass so we can have something to base our
study on. So we will be looking at that as well.
Mr. PETRI. Good. We are just hearing from various people in the
industry. A big fine concentrates the mind and there are some
ideas that people think they have that they would like evaluated
not to set aside the rule, but to implement it in a way that would
benefit the traveling public more than a rigid one size fits all approach, which they currently fear is the case.
There are some unanticipated consequences in airlines behavior
because, facing a big rule, when they get near the three hours, or
fear they might, get everyone back in the airport and then maybe
they will have to sit there for six hours or eight hours, waiting for
another flight; whereas, they could have, if they had gotten taken
off knowing the weather change or whatever was causing the delay
was about to be overcome. But airlines are afraid of paying a couple million dollars because they hit the three hour point. They
would rather save that money and inconvenience the customers
than give them true convenience.
Anyway, this is the concern that they have, that it is not a voluntary delay; they are trying to work with some real world situations, but to save this money they are faced with really inconveniencing customers or spending $3 million of their money, so they
currently are really inconveniencing the customers, which is not
our intention.
Mr. DILLINGHAM. Right. We will, in fact, be looking for unintended consequences as well, as we undertake that work.
Mr. MITCHELL. Mr. Petri, may I, very briefly?
Mr. COSTELLO. Mr. Mitchell, go ahead.
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Mr. MITCHELL. Very brief comment. The reason that the rule is
working so far is because finally the airline senior management
teams have been made to prioritize this problem. One month of
data, six months of data will not really matter. What is going to
matter is that the airlines will have a period of time over the next
12 months to do the enormous work required in their systems and
their operations to make this work for the passenger. I would virtually guarantee, a year from now, this will be a nonissue; the airlines will adjust.
Mr. COSTELLO. Mr. Rivkin, to follow up on Mr. Petris point and
question, let me ask did you say that the Department has one
month or was that a quarter, the five tarmac delays?
Mr. RIVKIN. That was in the month of May of 2010. So we can
only compare that month to May of 2009.
Mr. COSTELLO. To Mr. Petris point of the industry raising concerns about consumers, conversely, have you had any complaints,
the Department? Have you received any complaints from passengers or consumers?
Mr. RIVKIN. Yes, of course we have, sir. We have a staff of lawyers and investigators who field complaints every day.
Mr. COSTELLO. Specifically about the five delays during that period of time?
Mr. RIVKIN. We are investigating those five delays, but we also,
in addition, investigate media reports and call-in complaints. So,
yes, we are investigating whether those are actionable delays.
Mr. COSTELLO. The Chair now recognizes the gentleman from Oregon, Mr. DeFazio.
Mr. DEFAZIO. Thank you, Mr. Chairman.
Mr. Baldanza, you said that you unbundled the charge in 2007
for checked bags and lowered base fares. Was that a net to the airline? Did you lower base fares as much as your revenue or did you
actually increase revenue although you unbundled?
Mr. BALDANZA. Mr. DeFazio, we increased revenue because we
carried more passengers.
Mr. DEFAZIO. OK, per passenger per average, did you realize
more by unbundling and charging them a little bit less on the fare
but a lot more for the bag?
Mr. BALDANZA. No. The average fare we collected from each customer has dropped each year since 2007.
Mr. DEFAZIO. OK, so you did it as a public service. That is good.
So when you begin to charge for people to carry bags on and put
them in the overhead, are you going to lower fares again?
Mr. BALDANZA. We already have.
Mr. DEFAZIO. OK. That is good. I tell you what, I have flown
about 4 million miles since I have been in Congress; had a hell of
a lot of conversations with people getting between here and there,
and the first thing they care about is whether they get there alive
and safely, but the second thing is the conditions under which they
travel and what they paid for their ticket.
Now, they dont care where that money goes. They just want to
know how much the ticket is going to cost them. So why would you
object to a system where people would be able to meaningfully compare what they are going to pay in total to go from A to B?
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Mr. BALDANZA. We dont object to that system. In fact, we have
spent a lot of money changing our website so that it is fully disclosed. When you buy a ticket on Spirit Airlines, you know exactly
what your price is for the choices you choose.
Mr. DEFAZIO. On the first page or when I finally get to the
point
Mr. BALDANZA. Before you pull out your credit card and put your
money up.
Mr. DEFAZIO. But you are not providing the data to the marketers.
Mr. BALDANZA. Absolutely, because as customers go through the
shopping process, they say I want to fly from A to B, then maybe
I want to check two bags, maybe I want to buy travel insurance
or not, maybe I want to join this club or not, or whatever, and at
the end they see the whole piece of what they are going to
buy
Mr. DEFAZIO. Excuse me, excuse me. I reclaim my time.
Mr. Moore, could you comment on this? I saw you shaking your
head. I thought I understood from Dr. Dillingham and from your
testimony that they are not cooperating with the secondary marketers in terms of these fees and charges.
Mr. MOORE. Thank you for the question. In terms of the data
that we would need, that a consumer would need to say, up front,
I am going from point A to point B, as you have said, and I am
going to check a couple of bags, and I want to be able to preselect
my seat, that type of information is not made available today; and
there has been no airline that has said that they are going to do
this permanently. I mean, there has been no airline that has said
that we are doing this expressly right now.
Mr. DEFAZIO. I think you said that there is a system that could
accommodate that.
Mr. MOORE. Absolutely.
Mr. DEFAZIO. And I think you said that airlines, some are more
or less interested, but they are worried about the effect, if they go
first, then consumers are getting fully honest what it is going to
cost me in total for this trip, for me and my kids, and get a meaningful comparison of the bottom line across all the airlines that you
report on, as opposed to when you go to a captive site, yes, maybe
they give you the information, but you cant compare it unless you
want go close that down, go over to another site, then do a comparison there, and then go to another site and do a comparison
there. They cant go to a one-stop shopping site and get this information. That is correct, right?
Mr. MOORE. That is absolutely correct.
Mr. DEFAZIO. OK.
Mr. MOORE. That is absolutely correct.
Mr. DEFAZIO. This kind of reminds me of when I was trying to
ban smoking in my early days on this Committee on airplanes. The
CEO would say, oh, I would love to do it, but we would be at a
competitive disadvantageI tried to convince him it would be a
competitive advantage because I hate smokingif we did that, if
we stepped out. So the Government had to stand in and say we are
not going to allow smoking; now you have a level playing field. So
I guess my question would be why wouldnt we create a level play-
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ing field here, especially since, what, half the tickets are purchased
through secondary marketing, not principally through airline sites?
Mr. MOORE. That is right.
Mr. DEFAZIO. Why wouldnt we create a level playing field there
by requiring the meaningful transfer of the necessary data to those
secondary marketers?
Now, why wouldnt we do that, Mr. Baldanza?
Mr. BALDANZA. Well, Mr. DeFazio, proving that our airline is
quite different from the airlines that my competitor
Mr. DEFAZIO. The ones that give us one price, like Southwest?
You are very different.
Mr. BALDANZA.is that less than 10 percent of our customers
buy from third-party intermediaries.
Mr. DEFAZIO. Well, that is great.
Mr. BALDANZA. So 92 percent of our customers buy direct from
our airline. We fully disclose 100 percent to that customer base.
Mr. DEFAZIO. OK.
Mr. BALDANZA. So if we would not
Mr. DEFAZIO. You are not answering my question. If the Government orders you to do this, is this going to be a big imposition on
you?
Mr. BALDANZA. No, because if we would do it for 92 percent of
our customers, why wouldnt we do it for 8 percent?
Mr. DEFAZIO. Well, that is true. Well, because maybe you would
get more customers if you were marketed more honestly on those
other sites.
Mr. BALDANZA. The 92 percent of the customers that buy from
us feel very good about our products.
Mr. DEFAZIO. Thank you very much, sir. Thank you. I appreciate
it.
Dr. Dillingham, do you have any comment on whether this would
be overly burdensome on the airlines to provide this data to the
system that Mr. Moore described?
Mr. DILLINGHAM. Mr. DeFazio, based on the work that we have
done, we do not think that it would be a tremendous burden on the
airlines to provide the kind of information in a way that customers
could make meaningful comparisons. Airlines already have administrative mechanisms in place that would facilitate doing this kind
of thing. It would not be free, but it would not be overly burdensome either.
Mr. DEFAZIO. OK.
Mr. Rivkin, why wouldnt we have a comprehensive rule to require that, as opposed to your sort of picking around the edges with
what you are proposing?
Mr. RIVKIN. We have asked that question in our current rulemaking and propose that it be a Government mandate, and we are
awaiting comment.
Mr. DEFAZIO. OK, thank you.
Thank you, Mr. Chairman.
Mr. COSTELLO. Thank you.
The Chair now recognizes the gentleman from North Carolina,
Mr. Coble.
Mr. COBLE. Thank you, Mr. Chairman.
Good to have you all with us today.
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Dr. Dillingham, how would you rate the transparency of current
airline fees, and in what ways could transparency be improved?
Mr. DILLINGHAM. Thank you, Mr. Coble. I think the findings of
our report indicate that the fees are not very transparent. In fact,
what Mr. Rivkin is talking about in terms of the way the Notice
of Proposed Rulemaking is being developed and put out to the public is closer to or at least we would consider it a first step in terms
of making it more transparent so that the consumers can in fact
compare what they are going to be buying from across websites.
Mr. COBLE. Mr. Rivkin, how does DOT define deceptive advertising?
Mr. RIVKIN. Mr. Congressman, our mandate is unfair or deceptive practices. That is similar to State consumer protection rules
around the Country where there is a body of case law that describes when there is a misrepresentation or a misleading assertion.
Mr. COBLE. How specifically, Mr. Rivkin, does DOT plan to require full disclosure of optional fees and what would this require?
Mr. RIVKIN. Mr. Congressman, in our current rulemaking, which
is now out for comment, we have set forth a whole series of proposals that ancillary fees, as I described in my oral testimony, must
be fully and prominently disclosed. The key proposal is that the
total mandatory price must be disclosed the same way by every airline and agent so that the consumer can actually compare the real
price the consumer would have to pay as the final price the ticket.
Mr. COBLE. I thank you.
Mr. Mitchell, how will more transparency on the part of airlines
and their ancillary fees benefit corporate travel programs? Or will
it benefit corporate?
Mr. MITCHELL. Well, the direction of the DOTs NPRM will solve
several problems for corporate travel departments. First of all, with
knowledge of the fares and the fees, they will be able to budget
more effectively; they will be able to administer the programs, do
the accounting and the auditing correctly; they will be able to enforce travel policy.
Currently, a fee is indistinguishable between a checked baggage
fee or an upgrade to business class, for example. So there is a
whole host of benefits, including their travelers not being surprised
at the airport by these fees, and confused. So there are great benefits that would come from full disclosure and transparency as laid
out in the NPRM.
Mr. COBLE. Thank you.
Thank you, gentlemen, for being with us.
Mr. Chairman, I yield back.
Mr. COSTELLO. The Chair thanks the gentleman and now recognizes the gentlelady from California, Ms. Richardson.
Ms. RICHARDSON. Thank you, Mr. Chairman.
Mr. Baldanza, I realize you are the President of Spirit, but I
would appreciate not being yelled at like you just did with my colleague here. So let me just lay that out in the front. Here, you are
in Congress and I am going to talk to you with respect, and I would
like for you to do the same with me.
My first question isand let me ask this to Mr. Dillingham when
a plane is unloaded, is it generally done by a general employee on
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an airport or is it done by a specific carrier? I seem to recall, and
I fly two times a week, I dont always see that it is a specific carrier. So could you clarify that for me?
Mr. DILLINGHAM. Ms. Richardson, when you say when a plane is
unloaded?
Ms. RICHARDSON. Like, for example, when Spirit Airlines, if they
are unloading their passengers in Florida, lets say, we get off the
plane. Is it the Florida airport, their employees that are unloading
it or is it Spirits employees? Or does it vary from airport to airport?
Mr. DILLINGHAM. Right. I think the latter, it varies from airport
to airport.
Ms. RICHARDSON. OK. That is an important point, because I
think it gets to the question of, well, why are we charging more
fees.
My next question is, Spirit, have you collected data on your passengers and what do you know in terms of the number of packages,
has it increased or decrease, of your passengers since you have
added this fee?
Mr. BALDANZA. Since we began charging for checked luggage, we
are checking less luggage than before we did, so it has decreased.
Ms. RICHARDSON. OK.
And, Mr. Dillingham, in your professional opinion, in your evaluation, what I see on the plane and I can tell you is that I have
noticed a dramatic increase with people who have on bags, how
much longer it takes to get everybody onboard, and it does become
dangerous. You have people slinging high bags. Not everyone is
strong enough to lift it and it becomes a problem. Is there a safety
issue that we might have a concern with with this new policy, Mr.
Dillingham?
Mr. DILLINGHAM. Ms. Richardson, there is the potential for a
safety issue here, and I think when we talked with the flight attendants, for example, they are really concerned because they are
usually the ones that are trying to lift those heavy bags over into
the bin as well. There is also the issue of flight delays that are associated with that, trying to get all the bags on.
And then you have situations where people, for a while they
would bring a bag that wouldnt fit. They didnt have to pay for it
by checking it in, but then they could get it free by taking it down
to the gate. So there are all kinds of unintended consequences and
gaps that are going on at this point in time.
Ms. RICHARDSON. OK. And then I have two quick last questions,
and I realize we are calling for votes, so the answers, if we could
have them be brief.
I believe you had said that the DOT had not responded to the
recommendations, Mr. Dillingham. Is it that they didnt respond or
just that they have not agreed or disagreed?
Mr. DILLINGHAM. The recommendations in our report?
Ms. RICHARDSON. Yes.
Mr. DILLINGHAM. They have not responded; it wasnt an agree or
disagree. And usually they have 60 days to fully comply in one way
or another, so it is not unusual that we are in this situation, since
we just issued.
Ms. RICHARDSON. OK.
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And then my last question is back to you again, Mr. Baldanza.
I apologize if I butchered your name. I understand and I read in
your testimony that the information is available on your website;
however, the community that I represent, not everyone has a computer, not everyone has access to websites, and many people are
utilizing services, as Mr. Moore has mentioned, calling their local
travel agent, who helps them to answer all the questions. So if you
are providing the information on the website, really, what is your
objection to providing the information to the agencies and to the
GDS system?
Mr. BALDANZA. We dont have that objection. What I have said
is
Ms. RICHARDSON. If you dont have the objection, why arent you
doing it, then?
Mr. BALDANZA. It is simply because we have not had the ability
to see how the system works yet, and we wont put ourselves at the
competitive disadvantage yet.
Ms. RICHARDSON. So
Mr. BALDANZA. And only a small
Ms. RICHARDSON. Excuse me. I am reclaiming my time. That is
how it works here. So are you saying to me that neither two of
these gentlemen here, Mr. Mitchell or Mr. Moore, have provided
you an example of how you could provide that information?
Mr. BALDANZA. No. What I am saying is that
Ms. RICHARDSON. No, yes or no?
Mr. BALDANZA. No.
Ms. RICHARDSON. Has anyone supplied you with the information
of how you could incorporate it?
Mr. BALDANZA. Not that I am aware of.
Ms. RICHARDSON. And if you were provided it, would you be open
to adjusting that system for consumers?
Mr. BALDANZA. We would be open to considering it, yes.
Ms. RICHARDSON. Thank you, sir.
Mr. COSTELLO. The Chair thanks the gentlelady and now recognizes the gentleman from Arkansas, Mr. Boozman.
Mr. BOOZMAN. Thank you, Mr. Chairman.
Mr. Rivkin, what are the top priorities in the fee rulemaking,
your top priorities?
Mr. RIVKIN. What are the top priorities in the current rulemaking?
Mr. BOOZMAN. Yes, sir.
Mr. RIVKIN. Well, we dont list them in order of priority, but this
is a rulemaking that encompasses a broad number of consumer
issues that we issued in the wake of our last rulemaking, so we
have tried to be as comprehensive as we could be, understanding
that there are always going to be other issues. I would say that
true full price advertising is one of the key principles; that baggage
fees be fully disclosed and reimbursable when not delivered; we
have also proposed increased compensation for involuntarily
bumped passengers; and cancellation of a reservation within 24
hours without charge.
So there are a number of additional provisions and, in fact, we
have tried with this rulemaking to achieve the maximum public involvement we could by partnering with Cornell University at
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RegulationRoom.org so that the public might find it easier to go to
that website and actually comment on the proposal, Cornell will
summarize those comments and place them on the rulemaking
docket.
Mr. BOOZMAN. So you dont really, then, feel that certain ancillary fees should be included in the base fare? You are not going
that way with the rulemaking?
Mr. RIVKIN. We do not have the authority to regulate fees,
routes, or service, so we are trying to discharge our mandate to ensure that what the airlines do, they do openly and transparently.
Mr. BOOZMAN. When do you think the final rule will be issued?
Mr. RIVKIN. We are hoping, but we can never be sure, to issue
the final rule before the end of this calendar year.
Mr. BOOZMAN. And we only have literally just a minute or so, but
in separating out the baggage, and, again, I am a guy that is flying
all the time and that is an extra fee and things, is it such, though,
that in having the increased fee and, thus, not having as much
baggage, is that a good thing as far as transporting people and
using less fuel? I guess what I am saying is are there any positive
consequences as a result of people not having two bags every time
they go someplace? Does that make sense?
Mr. RIVKIN. I am sure there are arguments, and I have heard
some of them on different sides of that issue. We just heard some
comments from Mr. Dillingham that more carry-on bags could be
dangerous and could delay the loading and unloading of flights. On
the other hand, perhaps people are incentivised to carry less with
them that they dont actually need. I personally really dont have
an opinion.
Mr. BOOZMAN. How about you, Mr. Dillingham? I guess what I
am saying is do you carry more people on top? Is weight a factor
so that you can actually carry more people and thus, theoretically,
you are not having as many planes in the air to affect the environment and fuel and all those kinds of things? Is that a factor in reducing the weight?
Mr. DILLINGHAM. Mr. Boozman, as you have indicated, weight is
a factor in terms of flights, and, therefore, you could make that argument in weight taken altogether. We havent done any work that
would indicate sort of what the increment is between baggage and
persons, but the logic is there.
Mr. BOOZMAN. OK. Thank you very much.
Mr. COSTELLO. The Chair thanks the gentleman and will announce that we have three votes pending on the floor right now.
We will return. Members have questions and I have some questions
as well. I would ask everyone to be back in the room in your chairs,
if you will, by 3:40.
The Subcommittee will stand in recess until 3:40.
[Recess.]
Mr. COSTELLO. The Subcommittee will come to order.
Dr. Dillingham, in your statement you describe potential revenue
for the Airport and Airway Trust Fund if these checked bags were
taxed at the 7.5. How much did you say it would generate for the
Trust Fund, $200 million?
Mr. DILLINGHAM. Around $200 million, yes, sir.
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Mr. COSTELLO. OK. And obviously it is not in Trust Fund. While
the airlines have made a substantial amount of money off of these
fees, the Trust Fund has shown a deficit in the same period of
time, is that correct?
Mr. DILLINGHAM. The uncommitted balance in the Trust Fund
has in fact been going down. Mr. Chairman, I wanted to point out
that part of what we say in our report is that we only are talking
about a proportion of the fees that have been charged by airlines
because we couldnt disaggregate some of the other fees, so the
total amount is yet to be determined.
Mr. COSTELLO. But it is clear from what you have seen that revenue for the airlines as a result of these fees, obviously the revenue
has gone up, while at the same time the Trust Fund is going down.
Mr. DILLINGHAM. That is correct. But I am not sure I would link
them, but both of those statements are true.
Mr. COSTELLO. But we would generate $200 million more if in
fact the fees that are collected were in fact part of the tax and
going into the Trust Fund.
Mr. DILLINGHAM. Yes, sir.
Mr. COSTELLO. OK. Let me ask you, there are a number of recommendations, several recommendations that you have made to
the Secretary to improve disclosure and information on airline-and
government-imposed fees to improve airline reporting of revenues
to the Department of Transportation. Can you walk us through,
just for the record, to be clear, what some of those recommendations are in the GAO report?
Mr. DILLINGHAM. Yes, sir. They fall into two basic categories.
The first one is the matter for consideration that we offered to the
Congress in the sense of if the Congress wants to consider taxing
the fees, and that is a policy decision that the Congress needs to
make, but with regard to the recommendations that we made to
the various departments, DHS, Agriculture, it was the same basic
principle, that is, full disclosure, transparency of fees. Let those departments, DHS to let the DOT know what their refund policies is,
let the airlines know what those refund policies are across those
agencies. Again, it is an attempt to be transparent and disclose to
the flying public.
Mr. COSTELLO. Mr. Rivkin, in your testimony you state that in
the proposed rulemaking that you are asking for comments on the
cost and benefits of requiring that two prices be provided in certain
airfare advertising. I wonder if you might explain that.
Mr. RIVKIN. Certainly, Mr. Chairman. The basic principle is that
we want there to be a full fare price that includes all the non-optional prices so that, really, apples to apples could be compared. We
are seeking comment really in an agnostic way and hoping that we
can become educated and learn through the rulemaking process
what would be useful. In addition to that price, the mandatory
price that includes fees, we seek comment on whether it would be
helpful to the public to have another price that would be essentially the bare minimum price plus what people are normally used
to having included in the price of a ticket such as a bag or two and
perhaps a seat being selected. We are asking if there might be
some standardized way of comparing that notional price, as well,
to give more information to consumers.
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Mr. COSTELLO. I mentioned earlier, when I recognized you, that
I commend the Department of Transportation and the Secretary for
being proactive and taking regulatory actions concerning consumer
protection issues, and I am pleased that you are moving forward
with additional regulatory protections. Regarding deceptive fares
and deceptive advertising and greater transparency for airline fees,
I, frankly, do not believe that we are going to get where we need
to be unless we do this either through rulemaking or through action taken by the Congress.
Mr. Baldanza said earlier that he did not object. I think he
talked about an unfair competitive advantage if one airline does it
and the other one doesnt. Obviously, if you do not have an objection to posting all of the fees, if everyone has to do the same, and
he said he wouldnt have an objection.
I assume, Mr. Ridley, you would say the same, is that correct?
Mr. RIDLEY. Given our situation, where we have very few fees,
we would not object.
Mr. COSTELLO. Mr. Baldanza, let me ask you. In your written
testimony you indicate that Spirit believes it is unfair to charge
passengers for extra services that they do not use. What do you
mean by that?
Mr. BALDANZA. Thank you, Chairman. What I mean by that is
that different customers ask for different things in terms of their
air travel, and we think it is unfair to presume that a customer
might want, might need to check two bags or might need to have
a certain service onboard.
So at Spirit we think it is very important to only charge them
what is necessary for their trip, but then make available in an optional basis other services and options that they may be able to
use. We think this benefits consumers. We think this results in
lower fares and it gives customers the option to say this is valuable
to me, so I will pay for it, or it is not valuable to me and I can
save the money.
Mr. COSTELLO. You also indicate in your written testimony that
unbundled services do not impose any cost on airport infrastructure, that there is no cost imposed on airport infrastructure as a
result of unbundled services. What do you mean by that? Are you
saying that checked bags do not put additional cost on an airport?
Mr. BALDANZA. What I mean by that is that the costs of transporting the passenger are all included in the base fare, and the
things we charge extra for we dont believe add to the burden that
the Aviation Trust Fund funds. So checked bags, for example, add
cost to the airline, but they dont particularly use air traffic control,
they dont particularly add airport related costs to the airport, they
add to the airline.
Mr. COSTELLO. I would respectfully disagree with you. I think it
is pretty clear that it does.
But at this point I will recognize the Ranking Member, Mr. Duncan.
Mr. DUNCAN. Well, thank you, Mr. Chairman, and thank you for
calling this hearing. I just have a couple of questions.
First of all, does anyone on the panel disagree with the statement by Mr. Ridley when he said that Southwest strongly believes
that the decision on these charges should be a business decision
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and left up to the airlines. Anybody disagree with that statement?
Yes, Mr. Moore?
Mr. MOORE. I am not sure that I would disagree with the statement. What I felt like I heard Mr. Ridley say is that it should be
left to the airlines as to how they actually market their products
and services. So whether they choose to bundle or not, I too believe
that that is an airline decision. The thing that I think was important, that I believe that Mr. Ridley would also support, is transparency. So if that means that you have an airline that is bundling
and one that is not, it just needs to be made clear to the consumer
about how you compare those apples and apples.
Did I characterize that right for you, Dave?
Mr. RIDLEY. I think that is fair, yes.
Mr. DUNCAN. Well, let me ask Mr. Dillingham and Mr. Rivkin.
In our briefing it says through various rulings and guidance, the
DOT has required that airlines and ticket agents disclose the following fees in airfare advertisements: fuel surcharges, peak travel
and holiday surcharges, and government fees, among others. Do
you think it would add substantially to airline costs or would really
substantially decrease airline travel if the airlines were required to
disclose these things like extra charges for bags and the kind of
fees that we have been talking about here today?
Mr. DILLINGHAM. Mr. Duncan, from the work that we have done,
we have seen no indications that the showing of fees and transparency of fees and disclosure would decrease travel.
Mr. DUNCAN. Well, would it be a substantial cost for the airlines
to do that in some ways?
Mr. DILLINGHAM. Again, based on the work that we have done,
we do not think that it would be a substantial cost to the airlines.
The airlines have administrative mechanisms in place starting as
a base, and the technologies that we currently have make these
kinds of disclosures relatively easy. And as you heard some of the
witnesses today, the market is beginning to rev up to produce all
kinds of mechanisms that will make this an easy thing to do. It
then becomes the airlines choice. As the Chairman said, short of
congressional action, then it becomes the airlines choice whether
they want to participate.
Mr. DUNCAN. Mr. Rivkin?
Mr. RIVKIN. I agree, Congressman Duncan, with Mr. Dillingham
that there is not a substantial cost to disclosing fully the fees in
the way that our regulations have suggested. Of course, the Committee needs no reminding that every rulemaking goes through a
rather rigorous cost-benefit analysis, and it wont get through OMB
if it doesnt have benefits commensurate with its cost.
Mr. DUNCAN. I will let all of you respond, but let me ask the airlines not only about that question I just asked, but also, and maybe
you have covered this, but I have had votes in other Committees
and havent been able to hear all of the hearing, but what is the
problem with the travel agents? They say that the airlines wont
give the information about these additional fees to them and it has
caused some problems for them.
Mr. Baldanza and Mr. Ridley, what do you say about that in response to the travel agents?
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Mr. BALDANZA. Well, this may be a bit of a clarification on my
earlier testimony as well, but I can confirm that Spirit provides full
detail about its fees and services to all of our GDS partners today.
And perhaps we are not providing it in a format or timeliness or
way that they can use it properly, but if we are not doing it that
way, we just need to know and we will do that, because we are
very open to that idea.
Mr. DUNCAN. All right. Mr. Ridley?
Mr. RIDLEY. Mr. Duncan, I am not sure that Mr. Moore might
be a better one to answer this, but since you ask the airlines perspective, in Southwest in particular, where we sell less than 5 percent of our bookings through either an online travel agent or a
travel agent, this is kind of a de minimis issue that I am really
not
Mr. DUNCAN. Is your main concern that you dont mind disclosing all these ancillary charges, but you just dont want to be
taxed on them? Is that the main concern of the airlines, Mr.
Baldanza?
Mr. BALDANZA. Well, we are fine with full disclosure because,
again, we believe with full disclosure we still will often have the
lowest total price. But in regards to tax, we dont believe it is appropriate to tax the ancillary fees because, in most cases, they do
not use the infrastructure that the tax is intended to pay for.
Mr. DUNCAN. And if they help you make any profit, you are going
to pay taxes in that way anyway, is that correct?
Mr. BALDANZA. That is correct, and it also allows lower fares to
the consumer, which generates more travel, which also generates
more tax revenue.
Mr. DUNCAN. Mr. Ridley?
Mr. RIDLEY. Well, at Southwest in particular, we are talking
about $100 million, which is a lot of money, even in this town.
While that is a lot of money, it should be compared to the billions
of dollars of fees that are the subject of this hearing. The industry
is overtaxed, I will make that point. But in terms of whether the
ancillary revenues that are the discussion of todays hearing should
come under the excise tax ambit, we just take the position that the
airline industry is already too heavily taxed.
Mr. DUNCAN. Mr. Mitchell and Mr. Moore wanted to comment either on the earlier questions or the later parts too, so go ahead.
Mr. MOORE. Mr. Duncan, thank you. My comment that I wanted
to make just surrounded the question you were asking on difficulty,
and what I would suggest to you is today there are a number of
airlines, 26 airlines, that are test piling this information through
ATPCO. They are experimenting with, you know, if I have this ancillary fee how would I file it, all that kind of stuff.
So they have done some good work to lay the groundwork even
internally for this. Those 26 airlines represent 86 percent of the
U.S. point of sale bookings in Sabre, meaning from today the airlines that actually know how to do this represent the vast majority
of bookings that we already do. Airlines can do this, it doesnt have
to be that difficult.
Mr. DUNCAN. All right. Mr. Mitchell?
Mr. MITCHELL. Yes, Congressman. I think that there are five reasons why the airlines are resisting this. The first is, as we said ear-
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lier, a few of us, the first airline to jump into this system and show
fares that are 30 percent higher than their competitor is going to
lose.
Mr. DUNCAN. Right, I heard that.
Mr. MITCHELL. The second reason is that there is great profitability from complexity and confusion. When you purchase a fare,
you purchase it thinking, many times, that that is what my all-in
price is going to be. Then you get to the airport and you are paying
30 percent or 40 percent more. Had you know about that earlier,
you may have made different choices of airlines or transportation.
So there is money to be made in complexity.
The third point is that by withholding this information from the
GDSes and the travel agencies, it is the common view of many industry participants that what the airlines are endeavoring to do is
force the agencies to actually pay them for this content. What that
will do, in effect, is shift the cost of merchandising and distribution
onto the backs of consumers.
And, finally, or fourth, lets move passengers in droves to Airline.com, where they do not have comparative shopping capabilities
and where they are going to get higher yields and higher fares.
And, finally, there is the tax avoidance issue.
Mr. DUNCAN. All right. Well, let me ask Mr. Rivkin this. Has the
Department of Transportation received a large number of complaints about these extra fees? Have you gotten thousands of complaints or hundreds of complaints?
Mr. RIVKIN. I dont have those with me, but we do get complaints
from a lot of people that are unhappy with fees. They just are.
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Mr. DUNCAN. All right. Thank you very much, Mr. Chairman.
Mr. COSTELLO. I thank the gentleman.
Mr. Moore and Mr. Mitchell, you heard Mr. Baldanza say that
Spirit fully discloses all of their fees online. You dont agree with
that, do you?
Mr. MOORE. My perspective would be that the, and I have
shopped Spirit.com. It is a more arduous process than I would like
as a consumer. I have to pick my city pair. I then get what I feel
like is a fare that I can rely on and then I find out that there are
taxes and fees that get added on top of that. That is not the ancillary fees we are talking about, just basic security fees, those kind
of things, that weren t disclosed initially.
And then I am going to have to put in my personal information
on where I live, all that kind of stuff, to actually get what I believe
is the true price. And then after all of that, I find out that there
might be a seat fee, and that actually might take place after I have
paid. It is troublesome to me as a consumer.
Mr. COSTELLO. Mr. Mitchell?
Mr. MITCHELL. Mr. Chairman, the way I would answer that is
that I think Spirit should be free to unbundle until the cows come
home and price to their heart s content. But so long as a carrier
is in a GDS and providing agencies with fare data, they need to
provide complete data, and they need to do it in a way that is very
transparent.
I think the marketplace will reward or punish Spirit Airlines
based upon how they conduct their business.
Mr. COSTELLO. And that is what we hear from consumers is that,
look, they set the prices and, as you said, they are setting fees.
Just tell us what we are getting. What is the price going to be, so
we dont have to spend a half hour or an hour shopping around on
a website.
As I see it, as you said, Mr. Mitchell, that the first airline who
jumps out there and does this and shows a 30 percent increase over
the cost in comparison to other airlines, they are not going to do
it voluntarily and they are not going to do it in a uniform manner
that consumers can easily understand, unless they are required to
do it.
Now, would you disagree with that?
Mr. MITCHELL. I would agree with that 100 percent. I am going
to file with the DOT a comment on behalf of a major corporation
whose travel manager came here last month with a family friend
and took a flight from Boston to L.A. The surprise at the airport
on baggage fees increased their total trip cost by 20 percent.
He went back to Belgium and looked through the GDS to find
any mention whatsoever of these fees. He went back to the travel
management company and looked. There was no mention anywhere. And this is a professional corporate travel manager. If it
can happen to him, what does that portend for the average consumer?
Mr. BALDANZA. Mr. Costello, may I make a comment?
Mr. COSTELLO. Yes.
Mr. BALDANZA. Thank you.
The booking process that Mr. Moore described for Spiritair.com
was accurate as of six months ago, but Spirit has invested hun-
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dreds of thousands of dollars to change our website to where today
you dont go through the arduous process he described, which again
was accurate as the way we used to work.
Today, the process is very simple and fully disclosed.
Mr. COSTELLO. Wouldnt it be in the best interests of your consumers, your passengers, as well as Southwest and every other airline out there, if there was a uniform way of posting prices, if they
go to Spirit or they go to United or Delta or Southwest Airlines,
all the same, easy to find and easy to understand. Isnt that in the
consumer s best interest?
Mr. BALDANZA. Well, it may be, and that is interesting. I would
like to be able to buy a refrigerator that way, too, when I go to
Sears and know what it costs me at Lowes and at Home Depot.
The reality is that different airlines offer different things to customers, and that diversity is a wonderful thing.
The world wouldt be a great place if every airline were like Spirit. I would also argue it wouldt be a great place if everyone was
like Southwest. The world is a better place because customers have
the choice of airlines like Spirit and Southwest and many, many
other airlines.
Mr. COSTELLO. One of the problems when it comes to pricing,
though, is that many people do not understand what their choices
are; and number two, that they are getting services that they didn
t know; paying for services that they didn t know that they wanted,
nor did they ask for.
So I think I have made my point and I think you have made your
point.
Final question. As I think all of you know, we passed in this
Committee and out of the House of Representatives an airline safety bill where we increased the requirements for pilots, both in
training and in number of hours in the cockpit, and also a number
of other things, flying conditions.
Just out of curiosity, since we have both of you here, what is the
starting pay, the entry level pay for a first officer with Spirit Airlines, the unbundled?
Mr. BALDANZA. I dont know the starting pay. I can give you the
average pay, and we tend to be a pretty low seniority airline. So
our average first officer is about three years senior with the airline,
and last year they earned about $70,000 a year on their W-2. Our
average captain is about eight years senior and last year earned
about $145,000 on their W-2.
Mr. COSTELLO. But you dont know what the starting salary is
of the first officer that is hired?
Mr. BALDANZA. The starting wage rate and how that translates
to their W-2, I dont have that information with me right now, but
we can certainly provide that.
Mr. COSTELLO. We would request that information.
Mr. Ridley?
Mr. RIDLEY. Chairman Costello, that is not my area of expertise,
but we will get you the answer as soon as possible.
Mr. COSTELLO. I understand the business model where we have,
I think in your written testimony, Mr. Baldanza, you say that since
2007 when we adopted our ultra low-cost carrier business model,
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our goal has been to provide basic quality air transportation at the
lowest possible cost. I understand what that means.
My concern is about safety, and that is why I am interested to
know at the lowest possible cost, what are your airline and other
airlines paying a starting First Officer, the entry level. We found
with a number of regional carriers that in at least one instance
that we know of that the First Officer was hired and paid less than
$20,000 a year. I am certain that is not the case at Southwest and
hopefully it is not at Spirit, but I would like to have that information if you would supply it to the Committee staff.
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The Chair now recognizes Mr. Petri.
Mr. PETRI. Thank you.
I just had one question, which probably reveals my ignorance
about the web information is collected and works and so on, but I
think it is mainly directed at Mr. Moore as to why, if Mr. Baldanza
s airline is posting all this information on its website and presumably other airlines post it in maybe somewhat different formats
and so on, the burden shouldn t be on you to just visit their
websites every day or upgrade it and say what is available. And
if you want a matrix and that airline does not provide that information, put an X there or something and the public would be informed, but they would then have the diversity of choice.
Or is this a legal issue? Are the lawyers for you saying you want
it provided by the airline so that if there is confusion or some difference, the liability is on them and you can show a piece of paper
or something? Is this what we are really talking about? Because
the information is there on different websites, so it must be someone is trying to shift legal liability to the airlines from themselves
who wants to present that information.
Or am I misrepresenting the situation?
Mr. MOORE. I appreciate the question, Mr. Petri.
It is one of those things where I look at it, and I dont look at
it as a legal issue at all. I do look at it as a question of complexity.
When you have 600 airlines in the world that have their schedules
in Sabre, and to actually try to go out and gather all this information in a very laborious fashion, it would be incredibly challenging
to try to keep that stuff fresh because as soon as you do, it has
been made stale. Things change.
And the other thing that makes this incredibly hard or impossible, basically, is that these charges are often applied and then
many times aren t, and that level of granularity is just not made
available on the website. So if one of Mr. Mitchell s corporate customers has negotiated away a baggage fee, well, that is not posted
on the website. We have no means to know that.
It is an imperative of the airline to provide that information because we have no knowledge of that level of granularity. And particularly that those things might apply at very low fares, but perhaps they dont apply at the higher fares. And the fees are applied
for seat fees, but perhaps not baggage.
It is a level of granularity that could never be gathered by going
out and trying to get it from the carrier websites.
Mr. PETRI. Excuse me, I am serious, but I thought there were
search engines and that half the websites are being hit automatically by Google or someone and they have ways of updating this
practically instantaneously. And people may want to change their
business model, and if you had to go through a government regulatory process, it could take months. And there are seasonal differences.
Do you buy a new airplane that may have different requirements
as to what type of bundling or unbundling would be appropriate?
I mean, this could retard a lot of flexibility in the industry if it is
not handled right. Or am I misunderstanding the situation?
Mr. MOORE. I would believe it actually introduces the flexibility
that we would need to allow a consumer to shop in the way they
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want. When you think about some of the stuff I was discussing earlier around how a consumer can suggest up front, I am an elite frequent traveler on United, as an example, and I am flying from New
York to L.A.
And with that, I go and shop. Well, perhaps I am not elite on
anybody else. The fees that might apply to me, those aren t available on the website. I dont know that. They are certainly not applicable to me. And particularly the fact that they may be applied for
one corporation or not, just based on the negotiated agreement that
I have with those.
There is no level of specificity that would be required in order for
that shopping mechanism to really work for the traveler. It is just
way too much data that changes far too rapidly. When you think
about the way a consumer shops, and this speaks to something you
were talking about earlier, Mr. Chairman, fully half the consumers
that shop in the online space buy at the lowest fare, and it is a
curve on total price.
So in other words you get to about 70 percent of travelers, they
will have bought within 120 percent or 130 percent of the lowest
fare, but half of those people, if they have missed that $20 charge
that may have been incurred, they might have made a very different decision.
And so there is a level of information that is just going to be lost
that consumers would benefit from tremendously and would actually change the products they may be buying because they are better informed. It is just too much information to try to be gathering
laboriously all the time.
Mr. PETRI. Anyone else have any comment on that?
Mr. MITCHELL. Yes, Congressman.
The ATPCO, the airline-owned company that distributes all
these fares to the GDS s and is in a position to distribute the fees,
they have identified 100 ancillary fees. That is what they are ready
to go to market with.
So if you do the possible combinations just with one airline, you
do the math 100 times 100, that means that a consumer has a possibility of 10,000 combinations for that one airlines; perhaps 9:00
o clock to 11:00 o clock on a Wednesday morning. If you are comparing against nine other airlines, that is 100,000 possible combinations.
This is orders and orders and orders of magnitude more complex
than anything this industry has ever known or faced before. And
it strongly begs for the technology and the standards to get into
place so that the consumer has the full disclosure he or she needs.
Mr. COSTELLO. I thank Mr. Petri.
Mr. Mitchell, you in fact state in your testimony that airlines
often have a strong incentive to mislead consumers on prices.
Mr. MITCHELL. Mr. Chairman, that is correct. Whether it is trying to look in the GDS and the travel agent as if you are matching
a Southwest or an AirTran, or whether it is just simply misleading
the consumer to think he or she has an all-in price, and then they
get to the airport and they are surprised.
But in addition to that, this is the no man s land for consumer
protection. Mr. Baldanza mentioned going to the store for a refrigerator. Well, luckily for him and the rest of us, we are protected
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in large part by the FTC. The FTC has no oversight responsibility
here and the consumer has no rights or legal remedies because of
Federal preemption, which the airlines have fought and championed and fought to expand.
So that is central to this idea that the consumer needs protection
here.
Mr. COSTELLO. Well, we know that there is one person at the
witness table that recently went through and examined all of the
airlines and the fees that they charge, and the GAO submitted this
report to us.
So I would ask Dr. Dillingham, was it a simple process to go and
understand what fees each airline charges? You just went through
this, you and your staff. Is it pretty simple for the average consumer to understand?
Mr. DILLINGHAM. Mr. Chairman, the GAO cannot own up to it
being a simple process. But we were able to identify those fees that
we in fact show in the handout that we passed to you.
Mr. COSTELLO. With a highly professional staff.
Mr. DILLINGHAM. Yes, with our highly professional staff.
Mr. COSTELLO. Not the average consumer.
Mr. DILLINGHAM. Not the average consumer, absolutely. We
agree that the permutations can be never-ending. So we are on the
side of making it completely accessible and transparent for the consumer.
Mr. COSTELLO. And that is the goal of what we are trying to
achieve here, and I think what Senator Menendez and his amendment, what he is trying to achieve is transparency so people understand and know what they are getting for the money and they can
compare one price to another and what their options are.
Mr. Petri, do you have any further questions?
If not, I will ask very quickly if anyone on the panel has anything to add before we close out the hearing.
Mr. Ridley?
Mr. RIDLEY. Mr. Chairman, I just cannot let it lie here. While we
are on record that we believe in greater transparency, I cannot sit
here and be lumped among all airlines that believe where there is
confusion, there is a chance for profit. I would argue that where
there is simplicity, there is a chance for profit, and that is the tack
Southwest has taken. So I dont want to be lumped in with all my
brethren in Mr. Mitchells description.
Mr. COSTELLO. Anyone else?
Mr. BALDANZA. I would as well, Chairman, thank you.
I would like to say that this has been extremely interesting to
us and I think the whole industry. And while there may be differences among Spirit and many other airlines in fees that measure
generally in the tens or twenties of dollars, the real outrage we
think at Spirit should be on the fares where the differences measure in the hundreds and thousands of dollars.
And when customers are asked to pay enormously high fares and
taken advantage of because the supply-demand relationship or
their inability to be flexible takes advantage of them, that is a
more outrageous situation for consumer exploitation than charging
of fees.
Mr. COSTELLO. And that is an issue for a different hearing.
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Mr. BALDANZA. That is right.
Mr. COSTELLO. Let me just thank all of you for being here today
and offering your testimony and answering questions of the Members of the Subcommittee.
And Mr. Rivkin, I hope you will go back and pass on to the Secretary and the Administrator as well that we encourage the Department to stay on schedule and to move quickly with their rulemaking.
Mr. RIVKIN. I certainly will.
Mr. COSTELLO. With that, this Subcommittee stands adjourned.
[Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]
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Hearing: Airline Fees

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Hearing: Airline Fees

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AIRLINE FEES

July 14, 2010

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For sale by the Superintendent of Documents, U.S. Government Printing Office

VerDate Aug 31 2005

15:25 Oct 25, 2010

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

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15:25 Oct 25, 2010

JERRY F. COSTELLO, Illinois, Chairman

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15:25 Oct 25, 2010

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Summary of Subject Matter ....................................................................................

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

PREPARED STATEMENTS SUBMITTED BY WITNESSES

SUBMISSIONS FOR THE RECORD

ADDITIONS TO THE RECORD

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HEARING ON AIRLINE FEES

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Mr. DILLINGHAM. Thank you, Mr. Chairman, Mr. Petri, Members

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